25 January 2013 10:46 [Source: ICB]
Polyethylene (PE) and polypropylene (PP) prices are being settled higher in January, but demand is suffering and lower naphtha prices, coupled with a weaker dollar, have led to a slowdown in the momentum that has been building since December, several market sources say.
European economic news continues to be weak
PP buyers say they are able to buy at increases below €30/tonne ($40/tonne), and in some cases €20/tonne this month, as opposed to the initial targets of producers that were as high as €75/tonne in at least one case.
In mid-January, spot homopolymer PP prices were trading slightly lower than in early January, at €1,230-1,250/tonne FD (free delivered) NWE (northwest Europe), and low density polyethylene (LDPE) was around €1,360-1,380/tonne FD NWE, on a net basis.
PE PRESSURED TO RISE
PE prices are under stronger pressure to increase than PP, but they saw a deeper drop in the fourth quarter of 2012. PP producers are already also under a cost advantage as the January propylene contract fell by €13/tonne, while the ethylene contract was stable.
Higher polymer offers are having an impact on demand in both PE and PP, however.
"I have decided, as much as possible, to live on my polymer stocks during most of January," said one buyer, and this sentiment echoed throughout the market.
The principal reason buyers are so hesitant is that many can see little justification for a price rise, and do not expect any hike to be sustained for any length of time. European economic news continues to be weak.
Recently-published data by the European Automobile Manufacturers' Association showed European passenger car registrations to be down by 8.2% in 2012, with a particularly sharp drop in December, and latest figures show that the German economy contracted by 0.5% in the fourth quarter of 2012.
Polyolefins sources in Europe do not expect much improvement in 2013. "Underlying demand is weak and I expect it to stay like this throughout 2013," said a major producer.
Many sources expect another turbulent year, following the extreme volatility of 2012, which both buyers and sellers found hard to manage.
"I fully expect to be ambushed by producers again in 2013," said a PE buyer. "It is very difficult to manage one's business under such circumstances."
Producers have managed to implement increases in January in spite of poor demand because output has been cut significantly for months, and a series of planned cracker maintenance shutdowns is also planned for 2013. Many polymer sources expect this to support pricing.
The unplanned outage of the Naphtachimie cracker in Lavera, France, could also have a supporting impact on PP prices in particular. The cracker may not run at full rates for up to 12 months following a fire at the unit's main compressor in December, said market sources, although this has not been confirmed by either INEOS or Total Petrochemicals, which jointly run the facility.
INEOS PP FORCE MAJEURE
INEOS has declared force majeure on PP and high density polyethylene (HDPE) from the site, while Total is thought to be able to source PP volumes elsewhere to fulfil contracts.
In contrast to this, any shortfall felt in the monomer market could be covered if cracker rates ramp up, said sources. Much depends on margins, and weaker naphtha over the past few days has improved naphtha-based margins somewhat.
"It's impossible to predict where naphtha will be when we come to settle the next [monomer] contracts," said the producer.
In mid-January, naphtha was trading at $901-903/tonne CIF (cost insurance freight). It had fallen to a low of $887/tonne CIF NWE during the week ending 11 January, but was as high as $948/tonne in the week ending 21 December. The volatility in the naphtha market has been at the source of volatility in polymer markets in recent months.
Polymer pricing discussions are expected to be drawn out this month, as one major producer still targets a three-digit hike in the PE sector.
PE and PP are used widely in packaging and the manufacture of household goods. PE is also used in the agricultural sector and PP in automotive sector.
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